In the Fifth Year of China’s accession to “WTO”, China’s Insurance Sector Steps into a New Stage for the Market Opening

—— Cathy Ma

China has allowed foreign insurers to establish their representative offices since 80s last century, which marks the beginning of market opening of China’s insurance sector. On accession to WTO in 2001, China accelerated its opening of the insurance market to foreign insurers in hopes of forming a win-win situation for foreign insurers and domestic counterparts. Till 11 December 2004, with expiration of the interim period subject to WTO Accession Agreement, China’s insurance market started to be fully opened to foreign insurers. Cut off at the end of 2005, a total of 27 among 46 Fortune 500 foreign insurance institutions have established their operation branches in China taking up to 6.9% of market share, 17% in Shanghai as it is one of the first cities to be fully opened to foreign insurers upon accession to WTO. With development of reform and opening-up policy, China’s insurance sector has improved cooperation with global insurance bodies. As approved by the State Council, China Insurance Regulatory Commission (“CIRC”) joined International Association of Insurance Supervisors and International Organization of Pension Supervisors.

With more and more foreign insurers coming into the market, CIRC has hightened the qualification requirement for foreign insurers to establish representative offices in China. CIRC working meeting reviewed and passed the Measures for Administration of Foreign Insurance Institution’s Representative Offices in China (“Measures”) as of 12 June 2006, effective as of 1 Aug 2006. The Measure is revision of the Measures for Administration of Foreign Insurance Institution’s Representative Offices in China (“Old Measures”) promulgated as of 15 Jan 2004, in respect of change in China’s political and economical environment as well as new issues emerged in the administration of foreign insurance institutions’ representative offices in China.

The newly promulgated Measures added access rules for foreign insurers to enter into to China’s market. Compared with the old Measures, it has added condition in “Application and Establishment” for representative office by foreign insurance institutions that “for a foreign insurance institution to apply for the establishment of representative office in China, if with insurance businesses, it should have more than 20 years of experience; if without insurance businesses, such foreign insurance institution should be of more than 20 years of existence.”By doing so, the authority has fair control on the quality of source of the representative offices which are the foreign insurance institutions coming into China.

Meanwhile, the new Measures also requires that when applying for the establishment of representative offices, a foreign insurance institutions should submit a “Feasibility and Necessity Study Report For Establishing the Representative Office in China” as well as a “Attestation that the pre-appointed chief representative of the representative office does not receive any penalty from the country or region where he lives resulted from serious breach-of-law(regulation) conduct for the previous three (3) years”.

Another point worth our attention where the new Measures clarified the detailed procedure for the representative offices to go through relative registrations after obtaining approval for the establishment. As stipulated in Article 9 of the new Measure, “The representative office should move to the defined office venue and file with CIRC the following documents, up to three (3) months after obtaining the approval for the establishment, 1) Certificate of Industrial and Commercial Registration; 2) Certificate of the right to lawfully use the office venue; 3) Information of office telephone numbers, fax numbers as well as postal address; 4) Information of chief representative’s mobile number, and email box.” Such stipulation has strengthened the supervision and management of representative offices as well as chief representatives.

In Chapter III “Supervision and Management”, it is the first time for CIRC to regulate that “General representatives or chief representatives should station and manage routine operations of the representative offices and the time for his or her station should be no less than 240 days on an accumulation basis.”

It is also the first time for CIRC to define the dismissal rule for the application of the establishment of representative offices. As stipulated, “In the event that a representative office receives penalty for over three times from CIRC, or that involves in illegal profitable activities earning large amount of income and causing serious harm, CIRC could consider such history at prudential review of application for the establishment of representative offices” . The dismissal rule protected the healthy development of foreign insurers in China.

Compared with the old Measures in 2004, the newly promulgated Measures has hightened qualification requirement for foreign insurance institutions to apply for establishing representative offices in China, detailed administrative penalty system and strengthened supervisory management of foreign insurance institutions’ representative offices. The five years growth of the insurance industry after accession to WTO evidences conquered the challenge of opening-up in the insurance sector. China’s insurance sector not only abides by its commitment to WTO but guards the safety of domestic insurance business as well, realizing the overall optimized relation between opening-up and risk management.

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